Year of Graduation
The Impact of the Deposit Insurance System on Liquidity of the Banking System
Double degree programme in Economics of the NRU HSE and the University of London
This study investigates how the working mechanism of Deposit Insurance System (DIS) in Russia affects liquidity of national banks. The main hypothesis of the paper is that during unstable situation in the banking sector, when many banks are subject to default, the agents of Deposit Insurance Agency (DIA) are able to attract new deposits by holding some part of the insurance payments they repay. The study further tests whether an increase in deposits helps banks execute one of their most important functions - liquidity creation - more effectively. For a period of 8 years (from 2010 to 2017) and a sample of all DIS members (700 on average) during that time. Propensity score matching (PSM) is performed to match DIA agents with banks (non-agents), most similar to them in terms of characteristics, and to analyse the difference in deposit attraction and liquidity creation dynamics between them. In order to get more accurate estimates, manual analysis of the data has been additionally performed. The results of the empirical analysis approve the main hypothesis of the paper, while the significance of results for the additional hypothesis is lower than expected, suggesting that it should be subject to improvement in the future research on the topic under consideration.